October 4, 2012
JULIE CARR SMYTH
COLUMBUS — In a year notable for its barrage of presidential TV ads, a pair of Ohio utilities unaccustomed to high-profile spats is also taking to the airwaves in a dispute over future electric bills.
The rivalry involves Columbus-based American Electric Power’s request to raise rates as it recovers costs associated with switching to a deregulated market.
The utility company says the increases are necessary to cover contract obligations and protect its workforce, but competitors, led by Akron-based FirstEnergy, say the added charges will make it impossible to compete in AEP territory.
The often impermeable world of utility regulation has been translated for the airwaves into an ugly schoolyard squabble.
AEP Ohio’s emotional TV spots paint FirstEnergy Solutions, the company’s retail arm, as a big, greedy businessman.
In one ad, he weighs down one end of a seesaw, licking a melting ice cream cone, as a child at the other end dangles precipitously in midair.
In other, he filches lemonade from a child and sells it at a profit.
“Pushing a scheme on a government agency to keep their costs down, FirstEnergy Solutions and other suppliers buy electricity at rates that aren’t fair, and turn around and resell it at a profit,” the ad says. “And if it continues, it could destroy thousands of Ohio jobs.”
FirstEnergy Solutions has responded with its own round of equally emotional spots. One portrays AEP as a basketball player dodging behind a group of children to avoid competition.
Another, in ominous black-and-white, shows a line of drably clothed children in a cafeteria line: “Step in line, and take what you’ve been served. When there isn’t fair energy competition, this is what it looks like: no real choice, no real innovation.”
Consumer mail has risen as the unprecedented ad war rages, said Public Utilities Commission of Ohio spokesman Matt Butler.
AEP Ohio asks to increase rates per 1,000 kilowatt-hours by $7.40 per month for residential customers. That’s a 5 percent rate increase this year, to be followed by a 3- to 4-percent increase next year and a nominal increase in 2014.
Revenue raised would help pay off AEP’s investments in power lines and fuel, and to help offset discounts it’s offering competing suppliers a discount off the $355 per megawatt day it costs the company to cover its generation contracts, said president and chief operating officer Pablo Vegas.
He says AEP has pooled the power it generates throughout the Midwest for 60 years, and it had kept the company’s rates below deregulated competitors. The company’s position is that it’s fair to charge suppliers who enter its territory to use the power generated under three-year pooling agreements signed before the transition, he said.
Vegas said the company is bound to honor those contracts, and so can’t freely retire or sell plants that aren’t economical.
“They’re committed to our customers in the state,” he said. “It’s a contract that we cannot break.”
FirstEnergy is fighting the proposed capacity charge, accusing AEP of seeking a “billion-dollar bailout.”
“Right now, the market price for the capacity charge is about $16 (per megawatt day). They want to charge about $255 for the right to serve the vast majority of their customers,” said spokesman Doug Colafella. “What that does is essentially wipes out any savings that we can offer to a customer.”
AEP likens the cost recovery it seeks to the “stranded costs” competitors, including FirstEnergy, were granted when they transitioned to the open market.
In 2000, the PUCO authorized FirstEnergy to collect $6.9 billion in such costs, which represent the difference between a company’s total investment in an asset, such as a power plant, and what it would sell for. The company says it ultimately did not collect the entire amount.
Colafella said AEP had 10 years to collect stranded costs, and declined to recover the majority under a settlement agreement.
Sandy Buchanan, executive director of Ohio Citizen Action, a watchdog group specializing in energy issues, said FirstEnergy did not raise rates — but did tack surcharges to cover its nuclear plants onto electric bills for years.
“The way I read this is that AEP is saying, ‘Hey, wait a minute. FirstEnergy got this bailout, how come we can’t get a bailout now that we’ve decided to enter this retail market?’” Buchanan said. “I mean, it wasn’t fair that FirstEnergy got a bailout, so is it now fair for AEP to get one? All of that is bad for consumers.”